Economic Growth for 2008, 2009 Lowered

By Jeannine Aversa | July 28, 2008 | 3:18 PM EDT

Washington (AP) - The White House on Monday lowered its forecast for economic growth this year and next and said unemployment is likely to rise as housing and financial debacles along with high energy prices take their toll.

Under the Bush administration's new forecasts, gross domestic product is estimated to grow by only 1.6 percent this year. That's down from a 2.7 percent growth projection made in February.

Growth next year is expected to clock in at 2.2 percent, also lower than the 3 percent growth rate previously estimated by the White House's budget office.

"The U.S. economy has continued to expand, but growth has slowed as a result of the sharp housing decline, disruptions in financial markets and high energy prices," the administration said.

With economic growth slowing, the unemployment rate is projected to move up to 5.3 percent this year and to 5.6 percent in 2009. The administration's old forecast called for the jobless rate to climb to 4.9 percent this year and next. The unemployment rate averaged 4.6 percent in 2007.

"Because of the recent slower economic growth, the labor market is likely to remain sluggish for a period of time before returning to better performance," the White House budget office said.

The administration believes the jobless rate will drop back to 5.3 percent in 2010 and continue to dip in subsequent years, falling to 4.8 percent in 2012 and 2013.

On the inflation front, consumer prices are now expected to rise by 3.8 percent this year, up from the administration's old forecast for a 2.7 percent rise. Prices should calm down a bit next year, rising by 2.3 percent. Still, that's also higher than the old forecast of a 2.1 percent rise.

"Inflation has increased in recent years, in large part because of surging food and energy prices," the administration said. Oil prices, which had spiked to a record high of more $146 a barrel, are now hovering around $124 a barrel.

The new forecasts were contained in the budget office's updated look at the nation's balance sheets. A record $482 billion budget deficit is now being projected for next year, something the next president will inherit.

The White House on Monday lowered its forecast for economic growth this year and next and said unemployment is likely to rise as housing and financial debacles along with high energy prices take their toll.